This article is meant to give thought frame work
around pricing and not a meant to be a perfect solution to your product-pricing
problem.

Hence read this article and make it your own for
addressing your product-pricing needs…

Getting the product price right is one of those ever elusive
goals that almost all product companies are after. Companies undertake
product-pricing activity for many different reasons, for example:

New product introduction

Updates to existing product

Changes to sales / revenue targets

Changes to product costing

Changes to competitive landscape

Just like other product related activities such as product
management, product development, support, etc., product-pricing activity should
also be given its due time, resources and priority. Without thorough data
driven process companies will find themselves not convinced about product
pricing and end up going to square one again.

Hence before beginning on the product-pricing endeavour, here
are some of the steps that companies should think about.

Again, a word of caution before I delve into various aspects
of the framework given below… this is a simple framework, and companies should
pick up the pieces that are applicable to them, as opposed to strictly
following the process. I’m not a believer in blindly following any framework
and neither do I promote it. I encourage companies to study various frameworks
and then pick the one that they believe will benefit the most for their specific
situation and then look into the application of it. I recommend that companies
should not look for silver bullet or ‘one size fits all’ approach cause there
is none!

Having said that, the first step in product-pricing exercise
is to really nail down the reason for undertaking the exercise. Instead of CEO,
Business head, Sales head initiating the conversation, it’s recommended that once
a quarter there should be a pricing check point. There are a couple of benefits
of doing that:

Sales head can provide you with the market pulse on the manner in which competitors are positioning pricing and customer input on pricing.

As a team, companies can determine the circumstances under which pricing needs to be looked into on emergency basis. For example recently airlines suddenly started cutting their ticket prices, telecom operators slashed priced of Internet usage, etc.

Identify any data collection tools that need to put in place or updated so that right data is collected on ongoing basis so that it can be used for objective decision making.

The discipline of having these conversations periodically helps
companies keep an eye out for any ecosystem changes that might force them to think
about changes to product pricing. In case the company has multiple products or
product lines that are related to each other, then it becomes even more
imperative to have these periodic checks. Through these meetings companies
should be able to nail down if product-pricing changes are required and if,
yes, what are the reasons for those.

It always helps to keep track of various industry best
practices around pricing. This is an ongoing exercise. It helps you in
understanding the following:

Industry rules and regulations specific to the
industry vertical that company operates in. For example recently SpiceJet was
pulled aside by government for selling tickets for Rs. 1

Accepted pricing norms in the industry.

a.Who pays for what?

b.Acceptable price range

c.Things that can be included or excluded from
pricing perspective

d.Pricing transparency norms, etc.

3. Pricing models that customer / consumers are
familiar with and can relate to.

The idea here is to get pulse of the eco system and
understand what’s working and what’s not.

2. Buying process: The end-to-end process that
Customers go through as part of product purchase.

a.
How are budgets approved?

b.
Who is the buyer?

c. Who is the approver or approvers?

d.
How do customers compare products?

e.
How do they use the product?

f.
Which features matter to them the most?

g.
How long is the buying process?

h.
How far in advance do customers plan the
purchase?

i.
Payment recovery once the product is sold

j.
Objections raised by Customers in the buying
process

3. Customer segmentation: All Customers are not
born equal. Broadly customers can be grouped into various categories. This
categorization or segmentation can help in creating pricing models based on
Customer’s ability to pay for and use the product. For example:

a.
Volume (High / Medium / Low)

b.
Global (Users from multiple geos using product)

c.
Number of users (High / Medium / Low)

d.
Bargain hunters

e.
Smart cookies

Each of these segments should be studied in-depth
so that product offering and pricing can be tailored to them.

4. Data capture: Customer segmentation can be done
successfully only if data is related to customers is captured by Sales,
Support, Marketing and product teams. Without this data, Companies may be
flying blind and not know what’s working for them and what’s not. Typically,
the longer time window data companies have to work with the better it is. In
case, the of new product release, this may not be possible, but then put the
systems in place from day one so that the data is captured from the get go.
Companies can use CRM systems, home grown systems, etc., but they must use some
system. Otherwise the data is lost in emails and permanently lost when folks
move on from organization.

Then comes the Competition, the ever changing and ever
present force that impacts various aspects of your business, including pricing.
In order to consider competitive impact, Companies’ should first know the
following:

Who is the core competition?

Competitions’ geo presence

Who is the secondary competition and beyond
that?

What pricing models do they have?

How big is their product adoption?

Feature comparison

How long have they been around?

Pricing model presentation

How often does the competition shows up sales
scenarios?

The key here is to really use the competitive information to
figure out the real threat that the competition poses in Company’s grown
strategy.

Companies should really have handle on the product costing.
Many companies in the B2C space create product and put it out there based on
the way their competition is pricing the product. They assume that the pricing
is such that they will be profitable anyways after a while. But this approach
is suicidal! Because companies then one day suddenly realize that despite of
high product sales volume, they don’t have a lot of margin and to be really
profitable, they would drastically need to change the pricing or increase sales
or cut costs. A number of books have
been written on product costing and it’s recommended that Companies should work
with certified cost accountant for getting a handle on their product costing.

Product pricing is also a function on Sales and revenue
targets. This is part of the top down approach of product pricing. A company
can decide that they have to reach a certain revenue goal and work backwards
from there to come up with an approximate price of the product. At this point
they may realize that they have to price the product much higher that what the
market is ready for or the other way round. In either case, the Sales team
needs to be always involved in the pricing conversation, so that they can bring
their market knowledge to the table. At the same time it’s necessary to note
that they don’t use pricing as the reason for not being able to reach their
sales target.

Pricing Models and Analysis is the most fun part of the
product pricing exercise. This is where all the data that has been gathered
internally as well as from external market is used for determine product
pricing. Here are some steps that should be taking as companies try to come up
with pricing model:

1. Identifying the key-pricing drivers:

a.
By users

b.
By organization

c.
By product units

d.
By transactions

e.
By functionality

There can be many more. Ensure that pricing
is in line with the value the Customer is getting out of it.

2. Impact analysis: Every time changes to pricing /
pricing model are suggested, impact on the following should be taken into
consideration before rolling out pricing:

a.
Existing customers (to grandfather or not)

b.
Sales and support process

c.
Revenue and Sales target

d.
Profitability

e.
Product buying experience

f.
Acquisition of new customers

g.
Product Management

h.
Product Marketing

i.
Product Engineering

j.
Billing related changes

3. Pricing models: When coming up with
product-pricing models, ensure the following:

Note: Avoid the word ‘unlimited’
in the pricing model wherever possible. Incase ‘unlimited’ word is being used,
then should be explained in the terms and conditions.

4. Scenarios modeling are very critical to really
understand the impact of pricing and pricing models. To do this, take existing
customers and future customers and find out before and after impact. For
example with current pricing Customer was paying X with new pricing customer
will pay Y. Create real looking pricing page, rate sheets to understand the
visual impact. Perform this activity for every customer segment and analyze the
impact. Be especially sensitive about the impact on the customer segment from
which the company is making large revenues. If this segment is adversely
getting impacted then, the new pricing might have over all negative impact on
the revenue.

Pricing roll out is equally if not more as crucial as the
pricing model itself. A lot of internal and external training needs to happen
before new pricing can be rolled out. Consider the following as part of new
pricing roll out preparedness:

1. Overall roll out plan with departmental
ownership. Timing of rolling out of
pricing changes is critical. Make sure that it’s not in or just before the time
when you get the most orders (busy season, if there’s one for Company’s
business). There is enough time to explain changes as necessary to the high
value customers.

2. Marketing:

a.
Website

b.
FAQ

c.
Pricing collateral

d.
Checkout process (if there is one used for
online purchase)

e.
Video (why is the change being made and how it
impacts you – the customer)

f.
A-B testing readiness

3. Product:

a.
Incase there are features that need to be added
to ensure correct pricing

4. Sales and Support:

a.
Updating sales and support process

b.
Training sales and support team

c.
FAQ (internal and external)

d.
Special process for High Value customers

e.
Process for breaking the news

i. Email

ii. Phone

iii. In-person

5. Setting benchmarks: It is essential to capture
benchmarks before rolling out new pricing, so that impact of pricing can be
checked objectively. Here are some of the benchmarks to that can be captured:

a.
Lead Generation benchmark

i. Number
of leads / week / geo

ii. Average
deal size by vertical

iii. Type
of leads (lead mix)

iv. Lead
sources

b.
Sales and Support Cycle benchmark

i. Time
to close deals

ii. Competitive
references during price negotiations

iii. Number
of price discussions when closing deals

iv. Feature
usage by customers

v. Number
and type of support queries

c.
Revenue benchmark

i. Revenue
by Geo and by Vertical

ii. Revenue
by Customer segment

iii. Changes
to customer segment mix

Once the pricing is rolled out, either to pilot group, or to
everyone, the impact of pricing must be tracked. There are a number of ways to
track impact:

Collect the KPIs and compare them against the
benchmark

Get on call / emails with customers to get their
reaction

Use the data from A-B testing to track change in
customer behavior

Take corrective measure as necessary

Keep track of macro-economic changes as well,
which may coincide with pricing rollout.

So before you take on the pricing exercise, ensure you the
have time and resources to do justice to it…

Being all in one: product manager and concept of product management

Product management is one of prime
focused elective courses here in Sunstone; Sunstone brings in live
experienced individuals to share expert insights in this area.Theme of Session was well poised of
explaining concepts of product management: product strategy, product
marketing, and product development. Mrityunjay, a senior Sunstone
faculty, shared his views on role and responsibility of project manager.
Mrityunjay also pointed out that a Product manager or a VP-product is a
Mini-CEO of the organization. He is jack of all trades and intensively
involved right from product grouting to product launch into the market.
He also manages the support, continues improvement and reengineering of
existing products.Session was also involved in some
brain-storming examples around digital marketing products such flash
ads, social media marketing products. Here are some examples we worked
on

Credit card, COD , net banking tool for e-commerce site design and operating and marketing model for such a product

Second half of the session was about interaction with Aditya Belande: founder of Yukta a product consulting firm. Aditya
comes with 13 years’ experience in product management as product
manager worked for many multi-national companies and some very
innovative products
Aditya is a very witty and street smart person explained us the
ground realities of a product manager, his behaviour and commitment
required to the role.
His slides explained, product manager basically is

Diplomat: Works with Sales, quality, engineering, operations, and customer services teams to align them to one goal.

Overall session left us with aura of excitement in field of product
management and challenging role of a product manager and also guided us
to crave road to become successful project manager in the near future .

Sunday, November 10, 2013

In the age of Internet, trends change faster than blink of
an eye and businesses are evolving faster than ever. By the time you realize
that a technology or business trend is emerging, something else is already come
up to disrupt the situation that quickly makes the business / technology plans you
are thinking of, look obsolete.

This continuous churn creates challenges for entrepreneurs
who may quickly get disoriented and confused. In order to demystify this churn,
and make sense out of it, the entrepreneur begins to reach out to the ‘Sages’.
Which begs the question, who are these Sages? These Sages can come under
various names, such as Mentors, Advisors, Experts and so on….

Now, as an informed entrepreneur, it’s your responsibility
to really understand how, when and what to engage these Sages on. You may
approach one of these Sages for…

Getting highlight level perspective on a
specific problem

Engage them for solving specific business /
technology problems

Getting connected with the right people in the
Industry, etc.

But as you think of engaging with Sage, I would suggest that
you think of one, more or all of these things, so that you get best and most
out of the engagement with the Sage. And it’s a fulfilling experience for both
of you...

1. Think about what you want from the Sage: The
input that you are going to get is going to be directly related to what and how
you ask for it. Hence, define your ask as crisply as possible. This will
prevent getting vague answers and keep the discussion focused. Another thing
that will help, is, setting the context / background of where you are coming
from and where you want to go as person and a company. Remember that right
conditions are required for the catalyst to create a catalytic reaction. Therefore
before you decide to engage, think about the following aspects of the
engagement model:

a.Time spent: How much time is the Sage expected
to spend with you during the engagement? Is that time being spent in once a
week meeting or on-going email communication? What is the protocol to respond
to urgent issues where help / guidance is needed?

b.Expected out come: What is expected out from the
engagement? Is it only soft conversation or are there are any specific
deliverables?

c.Onsite / Off-site: Is the Sage supposed to be
onsite for specific duration? Or is it a virtual engagement? What is the impact
of that on the outcome of the engagement?

d.Payment: Is it a retainer model with cash +
equity / cash only / equity? Or is it milestone / deliverables based?

e.Duration: What’s the duration of the engagement?
What would be the minimum amount of time to figure out if the engagement is
working as expected or not? Will it be sufficiently long for something
meaningful to come out of it?

f.Activities (core / non-core): Which activities
will the Sage spend most time on? What are some of the associated auxiliary
activities that you may want the Sage to focus on?

g.Primary point of contacts: Who would be the
primary point of contacts for engaging with Sage, so that Sage is not getting
distracted?

h.Communication methods: Given that Sages are busy
people and communication methods like emails are abused, its best to discuss
the communication method with the Sage for various type of activities? When
would the Sage prefer phone to email or in-person meeting and vice-versa?

i.Effectiveness metrics: Aspect of measurement
should always be nailed down upfront, so that you can prevent having a
conversation like… “I engaged with this Sage, but after 3 months I really don’t
know what I got out of the engagement.” But as a person / company engaging with
the Sage, you must know what you want out of it and how you are going to
measure it, otherwise you will never know.

j.Exit criteria: Knowing the exit criteria is as
critical if not more than the entry criteria. Cause’ that is what, is going to
decide the success or failure of the engagement with Sage. Hence think about
when and how you would want to exit the engagement with the Sage.

2. Research the background of the Sage: Knowing the
background ahead of time will help you in really understanding if the Sage can
possibly provide you with the information that you are looking for. For
example, if you are looking for business vertical specific information, then
find a Sage that has deep background in that vertical and can connect you with others
in that vertical. Talk to people and research to find out experience that the
Sage has in solving business problems. Understand the scale of problems that
the Sage has been a part of. Once you know what you are looking for in a Sage,
it will help you immensely in identifying the right one directly or with the
help of people.

3. Use the Sage’s time wisely: ‘Time is Money’
couldn’t be more true in case of your engagement with the Sage. This is because
Sages are always time crunched and so are you, especially if you a Startup
entrepreneur. Hence, think about how and where you would want Sage to spend
their time. Otherwise you will end up being in a situation, where clock is
rapidly ticking but value you are extracting from the Sage is minimal and below
your expectations. To prevent getting into this situation, make a list of all
the activities that you would want the Sage to be part of. Prioritize those
activities based on your needs. After that review those with the Sage, so that
you will know where you can leverage Sage’s time most effectively. Perform this
activity with rigor every once a week or fortnight and you should be able to
get best and most out of the Sage’s time.

4. Don’t abuse the Sages capabilities: There are a
number of conversation which I have been a part of, where the Sage is asked to
provide commentary on a topic that the Sage is not an expert on. Most Sages at
that point will provide some high-level insights and stop at that. But there
are a few that you should be aware of. The ones that provide misguiding advice
in the hopes of squeezing more business from their clients. But as a person
seeking advice, you must also be cautious of not providing encouragement for
such conversations. Use your judgment wisely to save time, money and preventing
yourself going on a wild goose chase based on misguided advice.

5. Don’t look for a Silver Bullet: As a Company /
Person soliciting Sage’s advice, it’s your responsibility to not expect Silver
Bullet answers from Sages for your business situations. In all probability, as a
person who is in the middle of the situation, you have a better understanding
of the situation. Leverage the Sage’s input as independent 3rd party
perspective to see if you have missed anything from data or problem-solving
perspective. Also, know that what the Sage is known for may not work for you.
There might be some useful pointers there, but everything the Sage knows may
not be always fully applicable to your situation. If you expect answers that
will solve your problems then, you would have set wrong expectations and
measure the Sage’s effectiveness on the wrong scale. This would be an injustice
for both you and the Sage.

So as you begin your journey of looking for the Sage take
these pointers into considerations and share you experiences…